24 May 2022

ESG Means No Playing Favorites: The Tesla Case

Keeping up with the latest news concerning the ESG can be hard considering all the related events shaking the globe lately.  However, there may be a few of us who have not heard of Elon Musk’s outburst last week about ESG being “an outrageous scam” after Tesla was dropped from the S&P 500 ESG Index.  Why is this news important?

Let’s start from the beginning.  When investors began considering aspects other than profit in their investments, that was the turning point for many corporations.  The launch of the S&P 500 ESG Index meant an evolution in (sustainable) investments, addressing the needs for an index to incorporate ESG values and measure the “performance of securities meeting sustainability criteria”.  As stated on S&P Dow Jones Indices official site, the S&P 500 ESG Index seeks to reflect many of the attributes of the S&P 500 itself, while providing an improved sustainability profile.  Clearly, the largest business in the world started a race to pioneer non-financial reporting, aiming the investors to proceed with them in the long term.  The world’s biggest electric vehicle manufacturer was not exempt from this trend.

However, this year, S&P Dow Jones removed Tesla from the S&P 500 ESG Index, stating concerns related to the lack of carbon strategy, and working conditions, such as allegations of workplace racism, as well as autopilot vehicle crashes, including fatalities.  The move was effective on May 2, 2022, but was only announced last Wednesday, May 18.  In a blog post, S&P Dow Jones noted that Tesla may be playing its part in taking fuel-powered cars off the road, but it has fallen behind its peers when examined through a wider ESG lens.

On the other hand, Musk claimed that the index “has been weaponized by phony social justice warriors”, and that political attacks on him will be escalating in the coming months, slamming the decision on Twitter.

Not to comment on the political background of the event, but we cannot stay blind to the importance of the ESG in businesses. Targeting one of the world’s largest companies for not complying with ESG’s basic principles means stating clearly that ESG is here to stay and that there will not ‘’be playing favorites’’.  Politically motivated or not, the Tesla case is quite an example for all the other market participants.

Investors acknowledge that resolving environmental issues is one of the decade’s most difficult challenges and it is expected that in the future there will be an increasing number of interested parties in the sustainable investments. The ESG standards, which define quantifiable requirements, help in making the success or failure of a company transparent and measurable.  Respectably, the biggest businesses will have to keep up with the trend, embrace these factors and make the necessary pivot if they are to remain relevant.